SAO PAULO/RIO DE JANEIRO (Reuters) - Taking aim at local corruption, Brazil is trying to get competition among global players to build a $1 billion natural gas plant, but the number of foreign bids will be smaller than anticipated due to more stringent requirements, sources said.

The logo of Petrobras, state-controlled Petroleo Brasileiro SA, is seen at their President Bernardes Refinery in Cubatao, Brazil June 8, 2017. REUTERS/Paulo Whitaker

Brazil’s state oil company Petroleo Brasileiro SA (PETR4.SA) excluded large local engineering firms implicated in a devastating corruption scandal from bidding on the project meant to be a model of clean contracting.

However, of the 30 foreign firms that Petrobras invited to bid on the new processing plant, only around five will participate in consortia submitting bids by the Aug. 28 deadline, three sources with knowledge of the matter said.

The effort to drum up foreign competition underscores the lengths to which Petrobras is going - and how much further it has to go - to move beyond a sweeping corruption probe that revealed billions of dollars in kickbacks and rigged contracts at the national oil giant whose massive deep water-oil discoveries once seemed to embody Brazil’s future promise.

To sanitize the process, Petrobras is now videotaping all meetings with bidders and requiring at least four people in the room, according to people familiar with the talks.

Petrobras is also requiring detailed technical proposals to avoid the delays and cost overruns that haunted the site of the new gas plant - a petrochemical complex known as Comperj, which was one of the company’s most corruption-plagued projects.

In response to questions about the bidding, Petrobras said construction of the gas unit should begin early next year and declined to comment further on the process.

The oil company needs to complete the plant by 2020 or it will be forced to reduce production at highly productive pre-salt oil fields. When the gas extracted with the oil is not processed, it is usually reinserted in the wells. But limits to the re-injecting the gas in the wells will be reached by 2020.

A clean and competitive international bidding process would be a victory for Chief Executive Pedro Parente, who has made tackling cost overruns on major investments a priority.

“The continued delivery of cost reduction is key in building confidence in the turnaround process at Petrobras,” Itaú BBA analyst Diego Mendes wrote in a note to clients earlier this year.

Success at the Comperj site could also serve as a model for drawing foreign investors and contractors to infrastructure projects throughout Brazil - a cornerstone of President Michel Temer’s economic agenda.

“There is a big opportunity for Brazil to innovate in projects to close the infrastructure gap,” said Norman Anderson, CEO of consulting group CG/LA Infrastructure.

RED FLAGS

Still, the more stringent requirements for Petrobras contractors have come at a cost.

Contracting executives, who requested anonymity to protect professional relationships, say the bidders may spend up to $10 million in detailed engineering designs required by Petrobras for the gas unit and uncertainty in the contracts has kept many from committing to a bid.

One aspect of the contract to build the natural gas plant that raised red flags with potential bidders: a clause allowing Petrobras to terminate the contract at any time without cause and without paying penalties or agreeing to arbitration.

Suppliers seeking damages if the contract is broken would have to count on the notoriously slow Brazilian courts.

After protests, Petrobras included specific reasons that would allow it to terminate the contract unilaterally. Even so, most international bidders considered conditions too risky.

The handful that have gone ahead with bids have also formed consortia to dilute the risks, including Chalieco’s partnership with mid-sized Brazilian group Método Potencial. Other foreigners are also choosing Brazilian partners which have not been implicated in previous scandals. In those cases the foreign firms invited by Petrobras remain the prime contractors.

Additional reporting by Marta Nogueira in Rio de Janeiro; Editing by Christian Plumb and Marguerita Choy